The Universal Investment Strategy (UIS) is one of our core investment strategies. It is an evolved, intelligent version of the classic 60/40 equity/bond portfolio. Much like the classic portfolio, UIS holds both the S&P 500 index and bonds. However, UIS can intelligently adapt to current conditions by shifting weight away from stocks in difficult markets and adding weight in bullish markets.

Instead of using simple bond ETF, UIS uses a sub-strategy, called HEDGE, which can choose between different types of safe-heaven ETFs.

The equity/bond (or in our case equity/HEDGE) pair is interesting because most of the time these two asset classes profit from an inverse correlation. If there is a real stock market correction, usually ETFs included in the HEDGE strategy (Treasuries, Gold, etc) are the 'safe' assets where money flows to, providing crash protection.

'Total return, when measuring performance, is the actual rate of return of an investment or a pool of investments over a given evaluation period. Total return includes interest, capital gains, dividends and distributions realized over a given period of time. Total return accounts for two categories of return: income including interest paid by fixed-income investments, distributions or dividends and capital appreciation, representing the change in the market price of an asset.'

Applying this definition to our asset in some examples:- The total return, or increase in value over 5 years of Universal Investment Strategy is 81.2%, which is lower, thus worse compared to the benchmark SPY (103.4%) in the same period.
- Compared with SPY (33.4%) in the period of the last 3 years, the total return, or performance of 21.7% is lower, thus worse.

'The compound annual growth rate (CAGR) is a useful measure of growth over multiple time periods. It can be thought of as the growth rate that gets you from the initial investment value to the ending investment value if you assume that the investment has been compounding over the time period.'

Applying this definition to our asset in some examples:- The compounded annual growth rate (CAGR) over 5 years of Universal Investment Strategy is 12.6%, which is lower, thus worse compared to the benchmark SPY (15.3%) in the same period.
- Looking at compounded annual growth rate (CAGR) in of 6.8% in the period of the last 3 years, we see it is relatively lower, thus worse in comparison to SPY (10.1%).

'Volatility is a statistical measure of the dispersion of returns for a given security or market index. Volatility can either be measured by using the standard deviation or variance between returns from that same security or market index. Commonly, the higher the volatility, the riskier the security. In the securities markets, volatility is often associated with big swings in either direction. For example, when the stock market rises and falls more than one percent over a sustained period of time, it is called a 'volatile' market.'

Applying this definition to our asset in some examples:- Looking at the historical 30 days volatility of 9.3% in the last 5 years of Universal Investment Strategy, we see it is relatively lower, thus better in comparison to the benchmark SPY (20.9%)
- Looking at volatility in of 8.2% in the period of the last 3 years, we see it is relatively smaller, thus better in comparison to SPY (17.3%).

'Risk measures typically quantify the downside risk, whereas the standard deviation (an example of a deviation risk measure) measures both the upside and downside risk. Specifically, downside risk in our definition is the semi-deviation, that is the standard deviation of all negative returns.'

Applying this definition to our asset in some examples:- The downside deviation over 5 years of Universal Investment Strategy is 6.6%, which is lower, thus better compared to the benchmark SPY (14.9%) in the same period.
- Compared with SPY (12.1%) in the period of the last 3 years, the downside volatility of 5.8% is smaller, thus better.

'The Sharpe ratio is the measure of risk-adjusted return of a financial portfolio. Sharpe ratio is a measure of excess portfolio return over the risk-free rate relative to its standard deviation. Normally, the 90-day Treasury bill rate is taken as the proxy for risk-free rate. A portfolio with a higher Sharpe ratio is considered superior relative to its peers. The measure was named after William F Sharpe, a Nobel laureate and professor of finance, emeritus at Stanford University.'

Using this definition on our asset we see for example:- The Sharpe Ratio over 5 years of Universal Investment Strategy is 1.1, which is larger, thus better compared to the benchmark SPY (0.61) in the same period.
- Compared with SPY (0.44) in the period of the last 3 years, the risk / return profile (Sharpe) of 0.52 is higher, thus better.

'The Sortino ratio measures the risk-adjusted return of an investment asset, portfolio, or strategy. It is a modification of the Sharpe ratio but penalizes only those returns falling below a user-specified target or required rate of return, while the Sharpe ratio penalizes both upside and downside volatility equally. Though both ratios measure an investment's risk-adjusted return, they do so in significantly different ways that will frequently lead to differing conclusions as to the true nature of the investment's return-generating efficiency. The Sortino ratio is used as a way to compare the risk-adjusted performance of programs with differing risk and return profiles. In general, risk-adjusted returns seek to normalize the risk across programs and then see which has the higher return unit per risk.'

Applying this definition to our asset in some examples:- Compared with the benchmark SPY (0.85) in the period of the last 5 years, the downside risk / excess return profile of 1.53 of Universal Investment Strategy is larger, thus better.
- Compared with SPY (0.63) in the period of the last 3 years, the excess return divided by the downside deviation of 0.74 is larger, thus better.

'The Ulcer Index is a technical indicator that measures downside risk, in terms of both the depth and duration of price declines. The index increases in value as the price moves farther away from a recent high and falls as the price rises to new highs. The indicator is usually calculated over a 14-day period, with the Ulcer Index showing the percentage drawdown a trader can expect from the high over that period. The greater the value of the Ulcer Index, the longer it takes for a stock to get back to the former high.'

Applying this definition to our asset in some examples:- The Ulcer Ratio over 5 years of Universal Investment Strategy is 4.51 , which is lower, thus better compared to the benchmark SPY (9.32 ) in the same period.
- Compared with SPY (10 ) in the period of the last 3 years, the Downside risk index of 5.46 is smaller, thus better.

'Maximum drawdown is defined as the peak-to-trough decline of an investment during a specific period. It is usually quoted as a percentage of the peak value. The maximum drawdown can be calculated based on absolute returns, in order to identify strategies that suffer less during market downturns, such as low-volatility strategies. However, the maximum drawdown can also be calculated based on returns relative to a benchmark index, for identifying strategies that show steady outperformance over time.'

Which means for our asset as example:- Compared with the benchmark SPY (-33.7 days) in the period of the last 5 years, the maximum drop from peak to valley of -15 days of Universal Investment Strategy is larger, thus better.
- Compared with SPY (-24.5 days) in the period of the last 3 years, the maximum reduction from previous high of -12.2 days is larger, thus better.

'The Maximum Drawdown Duration is an extension of the Maximum Drawdown. However, this metric does not explain the drawdown in dollars or percentages, rather in days, weeks, or months. It is the length of time the account was in the Max Drawdown. A Max Drawdown measures a retrenchment from when an equity curve reaches a new high. It’s the maximum an account lost during that retrenchment. This method is applied because a valley can’t be measured until a new high occurs. Once the new high is reached, the percentage change from the old high to the bottom of the largest trough is recorded.'

Applying this definition to our asset in some examples:- The maximum days below previous high over 5 years of Universal Investment Strategy is 489 days, which is greater, thus worse compared to the benchmark SPY (488 days) in the same period.
- Looking at maximum time in days below previous high water mark in of 489 days in the period of the last 3 years, we see it is relatively greater, thus worse in comparison to SPY (488 days).

'The Average Drawdown Duration is an extension of the Maximum Drawdown. However, this metric does not explain the drawdown in dollars or percentages, rather in days, weeks, or months. The Avg Drawdown Duration is the average amount of time an investment has seen between peaks (equity highs), or in other terms the average of time under water of all drawdowns. So in contrast to the Maximum duration it does not measure only one drawdown event but calculates the average of all.'

Applying this definition to our asset in some examples:- Looking at the average time in days below previous high water mark of 123 days in the last 5 years of Universal Investment Strategy, we see it is relatively higher, thus worse in comparison to the benchmark SPY (123 days)
- Compared with SPY (180 days) in the period of the last 3 years, the average days under water of 180 days is higher, thus worse.

Historical returns have been extended using synthetic data.
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- Note that yearly returns do not equal the sum of monthly returns due to compounding.
- Performance results of Universal Investment Strategy are hypothetical and do not account for slippage, fees or taxes.
- Results may be based on backtesting, which has many inherent limitations, some of which are described in our Terms of Use.